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Sunday, November 19, 2006

Feel Good Energy Policy

Reading over the Democratic proposals for their "first 100 hours" energy policy, I can't help but think it's a feel good policy.

There are definitely some good proposals in it, but there are some that if you actually understand how business works are going to end up being consumer unfriendly. Then there are those that instead of being pay offs to big oil are just payoffs to a different group. But it's for the environment, so it's all good.

The "feel good" part of the legislation comes in the form of tax breaks for people who buy hybrid cars and SUV's. If you look at the website www.feuleconomy.gov you'll find that most of the hybrids get 30 or so mpg. That's because other than the Prius and Civic, most are midsized cars or SUV's with V-6 engines.

I would suggest a better tax break than hybrids would be anyone who buys any car, hybrid or not, that gets over 35mpg combined mileage. That would only make 5 of 12 hybrid vehicles eligible, but would put dozens of other cars onto the list. An alternative would be to give the break to vehicles classified as Ultra Low Emmission vehicles, a small group but most put out as little or less greenhouse emmissions than the hybrids. Neither of these options are popular, as they would give tax breaks to a bigger percentage of foriegn owned car companies than US companies.

Increasing the CAFE standards, the measure of vehicle mileage, isn't on the board for the first 100 hours, or even 2 years. John Dingell of Michigan has vowed to keep it off the House floor as a way of keeping the UAW guys in his state happy. With light trucks and SUV's the only profitable vehicles coming out of Detroit it's understandable why he doesn't want to jack up the mileage standards on them.

One of the pay off's to envirnomentalists come in the form of removing some of the tax breaks oil companies get. The major one involves a domestic exploration break, which was enacted to get oil companies to find more here, less abroad. However, the enviromental groups the Democrats are beholden to hate the idea of more wells here.

Those breaks are hard to explain to the general public, which doesn't want long explainations, just something that sounds good. The fact is many other countries offer tax benefits for drilling in them, as they see oil as a way to get ahead. The US is at a disadvantage over many countries anyway due to labor costs and regulation. When you add high taxation to the equation, it becomes more profitable, and less agrevating, for the companies to drill somewhere unstable but cheap.

Another target is the tax break for refinery expansion. We already import about 10% of our refined oil products into the country because of lack of capacity. Lawyers and environmentalists have made it an economic nightmare to expand that capacity here, so the tax credit was used to try and blunt some of that. Unfortunately those two groups are huge donors to the Democrats, so their payback is to make our gasoline supply more dependent on Hugo Chavez.

Ethanol and Biodiesel are also in the plan. Both have good and bad points. Neither is cheaper than oil, the only reason you pay less for E85 fuel is tax credits to the companies that make it. Instead of giving a break to big oil, we give it to big agriculture. E85 is also about 20% less efficient that regular unleaded, and has it's own greenhouse issues. Biodiesel again requires breaks to agriculture to make it cost effective, though the efficiency is somewhat better than ethanol. Biodiesel has one other advantage, you can recycle cooking oil to make it, which is good for the environment, but again not cost effective on a large scale.

For other energy companies, those that produce electricity, the idea is a mandated amount of wind and solar power. The question is, will Ted Kennedy allow the Cape Cod wind farm to go forward, since that area isn't ripe for solar expansion? What about the Sierra Club? They are suing in Wisconsin to save bats from wind turbines. There is of course no provision for nuclear power, though one reactor can get rid of 2-3 coal fired plants.

Chuck Shumer's plan is to break up big oil companies. It won't do anything for conservation, or even the total amount of profits oil companies make. It will just reduce the amount of profit of individual companies. When Shell, Texaco, Chevron, Mobile and Exxon were separate companies they all operated on about the same 9.5% profit margin that they do now (which is about half of what your bank makes as a percentage of gross margin).

Sorry folks, but after reading about the plan, what I find isn't something that designed to help the consumer, but instead is payback to the donors to a different political party. Same game, different players is all we are getting with this.

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"War is an ugly thing, but not the ugliest of things. The decayed and degraded state of moral and patriotic feeling which thinks nothing is worth war is much worse. A man who has nothing for which he is willing to fight, nothing he cares about more than his own personal safety, is a miserable creature who can never be free except made and kept so by the exertions of better men than himself." --John Stuart Mill